Business Page – September 30th, 2001

World Investment Report: 2001 - Promoting Linkages (Part 2)

Today’s Business Page is
the second and final part of the adaptation of a presentation by Christopher
Ram at the UNDP launch of the World Investment Report for 2001 titled
“Promoting Linkages” on Wednesday September 19, 2001.

Introduction

In the first part of this
article we examined the flow of foreign direct investment (FDI) around the
world in 2000 and noted the concentration among a small number of countries
of both outward and inward flows. We noted that except for Trinidad and
Tobago, which has seen a boom in their petrochemical sector, the rest of the
Caribbean including Guyana has not been able to attract any significant
inflows. We also identified the benefits of linkages, and the preconditions
for the development of such relationships.These are:

That there are domestic enterprises
capable of operating successfully to international standards.

That international entities
consider that the host countries offer sufficient opportunities to
international investors to generate returns over and above those
available to them in their own country.

It was also suggested that generally fiscal and other
policy measures need to be put in place to promote linkages. This piece
seeks to identify some of the conditions existing in Guyana which militate,
not only against linkages, but against businesses in general.

Making Linkages
Difficult

The principal factors which
inhibit Joint Ventures of foreign and domestic investors are:

1.The continuing political instability which places a serious rating
limitation on an investment in Guyana. A risk premium is demanded for any
loan or equity, the proceeds of which are destined for Guyana. It is true
that many of the activities which attract foreign investors to Guyana take
place away from the contentious political arena and we note for example that
the largest gold mining company in Guyana has even shifted much of its
Georgetown operations to the Essequibo River. Yet that does not impress the
stock market in Canada where the parent company resides. In an era when
branding is everything, the name Guyana rings a negative bell, not only to
foreign but very worryingly to domestic operators as well. Indeed, there are
outward capital flows from Guyana which usually accompany the migrating
person, thus we lose both corn and husk.

2.The sectors that are likely to attract foreign investors are those in
which the domestic operators offer little advantage to a linkage. For
example, there was no entity with which ATN for example could have gone into
telecommunication, CDC into electricity or even OMAI into gold.

3.With the high cost of power and a small internal market, the domestic
manufacturer has not produced the kind of financial results which wouldattract foreigners to join with them. Even though Guyana has some
five finalists in this year’s Caribbean Entrepreneur of the Year Programme
sponsored by Ernst & Young, the international professional services
firm, not a single one of them is in any joint venture with either a
domestic or international partner. It needs to be said as well that while we
have some outstanding entrepreneurs, the group is too small and many of them
are notoriously undercapitalised, poorly managed and pay too little
attention to being competitive with regard to reliability and quality.

4.There appears some to be cultural barrier to linkages among our
domestic operators and even successful family businesses sometimes fragment
into inefficient pieces when succeeding generations take over.

5.Domestic operators have an obsessive preoccupation with control,
negating all the theoretical and economic advantages which linkages with
international entities offer.

6.Foreign investors sometimes seek
relationships with a domestic entity so as to ensure access to the corridors
of power. Experience in Guyana has shown that such access seldom resides in
the business community but rather in a small group with influence in the
political circles. Linkage in the Guyana context often means seeking out an
attorney or other professional with political influence to negotiate and
obtain concessions, which a domestic business entity cannot obtain. Indeed a
linkage with a domestic enterprise that does not enjoy a good relationship
with the political directorate may be fatal ab initio.

7.Many of the Guyanese businesses simply
do not match up to the demands of the international market place in quality,
price and reliability.

A Word of Caution

It would be unfair of me to suggest however, that such alliances are
necessarily a guarantee of success. Conventional wisdom has it that the best
way to do business in another country is through an equity joint venture (EJV)
with a well connected domestic partner. For example, until recently,
most multinationals thinking about setting up in China, saw joint ventures
as the only possible route. In some industries, they are the only foreign
involvement allowed by the Chinese government. But China is also a good case
of joint ventures going wrong. Great care has to be exercised by both
parties to the joint venture. The foreign entity may find itself conned into
a relationship with all kinds of promises while some domestic venture's have
joined, to their chagrin, with footloose individuals seeking to make a quick
buck.

There is no single model of what a joint
venture should look like. Clearly it will be shaped by local laws and
practice but the feasibility of any particular arrangement lies in the
details. Just about every element of the arrangements is a matter for
negotiation. What each venture brings to the table including both tangible
and intangible assets, responsibility and the rewards for management,
finance, technology, marketing and operations are matters which should be
subject to a great deal of detailed consideration and be written into an
agreement to which both parties are committed to complying in both spirit
and letter.

Conclusion

In the final analysis it is the culture of the linked
organisations that helps to determine success or failure. The inability to
mesh competing goals for a wider joint good has been the reason for some of
the more spectacular failures of joint ventures. These offer wonderful
lessons to the Guyanese entrepreneur seeking to participate in cross border
linkages. There have been few successful domestic efforts but these should
not deter attempts at international linkages.

The Report should be a wake up call to the
government and private sector in Guyana that notwithstanding the challenges
inherent in linkages, they do offer good opportunities for entry into the
international market place. Let our government and the private sector hear
this call and explore as a matter or urgency the opportunities to link
Guyanese businesses with their foreign counterparts. The first step must be
to create an environment conducive to efficient business operations
producing goods and services to standards that would ensure that our
entrepreneurs are accorded international acceptance as partners.

Copies
of The World Investment Report 2001 are available at the UNDP
office on Brickdam, Georgetown.